An Actuarial Issues Paper

The importance of financial statement is articulated by the role it plays for its users or stakeholders. The primary interest of users is to assess the fair value of shares by estimating and interpreting from financial reports. They use different models to capture the pulse of the firm to make sure of their investment prospects and use measures for valuation of the company. This paper aims to analyze different valuation models and interrogates the conjecture around the company valuation and estimation of measures particularly at the time of crisis that provokes the debate about the reliability of financial statements. The paper concludes that for forecasting value, it is imperative to understand the economic factors, strategic choices made by the management such as choosing product, location, quality, R&D program, alliances but at the same time, it is correspondingly significant to look at the business conditions like legal, political and regulatory constraints.

SSRN Electronic Journal, 2000

Practitioners and teachers very easily break some consistency rules when doing or teaching valuation of assets. In this short and simple note we present a practical guide to call the attention upon the most frequent broken consistency rules. They have to do firstly with the consistency in the matching of the cash flows, this is, the free cash flow (FCF), the cash flow to debt (CFD), the cash flow to equity (CFE) and the tax savings or tax shield (TS). Secondly, they have to do with the proper expression for the cost of unlevered equity with finite cash flows and perpetuities. Thirdly, they have to do with the consistency between the terminal value and growth for the FCF and the terminal value and growth for the CFE, when there is a jump in the CFE due to the adjustment of debt to comply with the leverage at perpetuity. And finally, the proper determination of the cost of capital either departing from the cost of unlevered equity (Ku) or the cost of levered equity (Ke). In the Appendixes we show some algebraic derivations and an example.

2000

American Journal of Social and Management Sciences, 2010

The current era of "convergence through connectivity" is slowly but certainly acknowledging the contribution of the so-called "intangibles" like brands, copyrights & patents, human & intellectual capital etc. to the bottomlines of companies. As an obvious corollary, issues relating to the valuation of such assets are surfacing with unprecedented regularity. Valuation of such assets posits an intriguing challenge for the accounting fraternity that is entrenched in the traditional ascendancy of "reliability" over "relevance". "Discounted Cash Flow" is ubiquitous in financial valuation. In fact, this technique constitutes the cornerstone of contemporary valuation theory.

Abacus, 2016

This special issue of Abacus was prompted and made possible through the annual conference of our research group MEAFA 1 at the University of Sydney, and especially by the contributions of visitors to MEAFA and their collaborations with members of the group. The six papers and added commentaries in this special issue of Abacus contain surveys and original contributions on the theory and empirical testing of a class of valuation models that is unique to accounting. Beginning with works such as Edwards et al. (1987) and Feltham and Ohlson (1995), a mathematical reconciliation is now widely known between the present value of cash flows and the present value of accounting residual incomes. 2 The only rule of accounting practice (asset valuation) required by this analogy is the clean surplus rule, whereby the period change in book value of equity, after allowing for dividends, shows up exactly in each period's accounting income or profit. This requirement says nothing about how assets need to be valued (e.g., how depreciation is calculated). It is only when a finite time series of residual income numbers is used to value the firm, or, in other words, to predict the firm's future, that policy-based accounting rules (e.g., depreciated historical cost versus fair market value) start to matter. Seeing that accounting valuation methods coincide mathematically with discounted cash flow models, researchers in accounting have returned to questions like why and how accruals accounting might produce 'accounting numbers' that anticipate or hint at the future prospects and current value of the firm. That way of thinking sets up the discipline of accounting as a science, with both theory and empirical results, each withstanding criticism and gaining respectability via the other. Whether that theory or testing is now sufficiently advanced to bring practical benefits is not the question. Any science in its development has to pass that stage. The papers in this issue of Abacus all celebrate what an 'accounting science' of firm valuation and prediction has to offer, both at present and in terms of ideas for further development. The six papers and commentaries are written by highlyrespected contributors to accounting valuation theory and testing, and together 1

Documentos de Trabajo, 2009

In this work we show a simplified financial planning model. In reality, financial planning models are huge and cumbersome. This is a very simplified model compared with what is found in practice.

Collected Papers of the New York University Mathematical Finance Seminar(Volume III), 2002

We consider the problem of replicating the payoffs from variable annuities with a continuous cash flow given by a function of some traded asset's price. The standard approaches involve either dynamic trading in this underlying asset or a static position in a continuum of options of all strikes and maturities. We present an alternative approach which combines dynamic trading in the underlying asset with a static position in options of a single maturity. In many instances, our approach yields explicit valuation formulas and hedging strategies when the volatility of the underlying is an arbitrary function of its price.

Corvinus University of Budapest eBooks, 2019

SSRN Electronic Journal, 2000